Budget benefit freeze to hit 13m families, says IFS

9th July 2015

Thirteen million UK families will lose an average of £260 a year due to the freeze in working-age benefits, the Institute for Fiscal Studies (IFS) has calculated.

The Chancellor claimed that most people would be better off under his Budget measures, but the IFS has returned a different verdict , arguing that millions of low-income families would be “significantly worse off”

Its director Paul Johnson said that even when higher wages are taken into account, people on tax credits would be poorer.

He said the biggest impact on families would be from the freeze in working age benefits and changes to tax credits, in spite of the minimum wage changes that George Osborne introduced.

Johnson said: “It will reduce the incentive for the first earner in a family to enter work.”

The IFS calculation includes those who claim Child Benefit, which will be frozen from April 2016. It is a benefit that most families receive.

In his Budget speech yesterday, announcing the introduction of a new minimum wage, Osborne said: “Britain deserves a pay rise and Britain is getting a pay rise.”

Under the new National Living Wage, all workers over the age of 25 will earn a minimum of £9 an hour by 2020.

Osborne went on to say: “Two and a half million people will get a direct pay rise.

“Those currently on the minimum wage will see their pay rise by over a third this Parliament, a cash increase for a full time worker of over £5,000.

“In total it’s expected that 6 million people will see their pay increase as a consequence.

“And taken together with all the welfare savings and the tax cuts in this Budget, it means that a typical family where someone is working full time on the minimum wage will be better off.”

John Cridland the director general of the CBI said: “The further reduction in corporation tax is a welcome surprise but tax reductions for employers don’t appear to match the businesses most affected by a rise to £7.20 in the National Minimum Wage next April – a 7% increase.

“The CBI supports a higher skilled, higher wage economy, but legislating for a living wage does not reflect businesses’ ability to pay. This is taking a big gamble that the labour market can absorb year-on-year increases of an average of 6%.